Sound bite for Twitter and StockTwits is: Dividend Growth Bank. The stock price is probably reasonable. I have personally done well with this stock. The DPR are fine and they have been paying dividends for a very long time (since 1870). See my spreadsheet on Royal Bank of Canada.
I own this stock of Royal Bank of Canada (TSX-RY, NYSE-RY). In 1995 I bought this stock and this is the second bank stock that I have bought. At the time I bought this stock it was on Mike Higgs' list of Canadian Dividend Growth Stocks and on the dividend lists I followed as were all the banks. Since buying this stock in 1995, I have had a return of 17.01% per year. This is made up of Capital Gain at 11.17% per year and Dividends at 5.84% per year.
When I was updating my spreadsheet, I noticed I also looked at how much you would have made if you paid $1,000 for shares some years ago. In this one the $1,000 was paid in 1988 and you would have gotten 211.86 shares. At the end of 2020 those should would be worth $22,159.48 and you would have received $10,575.27 in dividends. A reason to buy dividend growth stocks.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.10%. The 5, 10 and historical dividend yields are also moderate 4.04%, 3.93% and 3.99%. The dividend growth is currently low (under 8%) at 6.19% per year over the past 5 years. The last dividend increase was in 2020 and it was for 2.9%. However, the Royal Bank does do two increases each year. Dividends were increased by 6.50% in 2020. The dividend increases used to be in the moderate range (8% to 14% ranges). See chart below.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 is 54% with 5 year coverage at 47%. The DPR for CFPS for 2020 is 45% with 5 year coverage at 41%. In looking at Free Cash Flow, sites do not even come close to agreeing. Morning Star says DPR for FCF for 2020 is 4% with 5 year coverage at 23%, Wall Street Journal says the DPR for FCD for 2020 is 40% with 5 year coverage at 48%.
Debt Ratios are fine. Since this is a bank, I am looking at the Debt/Covering Assets Ratio which is good at 0.72. For banks, the Liquidity Ratio is not important. The Debt Ratio is for 2020 is 1.06 and a ratio of 1.04 and above are fine for banks.
The Total Return per year is shown below for years of 5 to 37 to the end of 2020. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 6.19% | 11.46% | 7.12% | 4.34% |
| 2010 | 10 | 7.58% | 11.41% | 7.17% | 4.24% |
| 2005 | 15 | 8.01% | 9.68% | 5.86% | 3.82% |
| 2000 | 20 | 9.61% | 11.36% | 7.43% | 3.92% |
| 1995 | 25 | 10.77% | 16.43% | 11.04% | 5.39% |
| 1990 | 30 | 9.42% | 14.90% | 10.20% | 4.69% |
| 1985 | 35 | 8.48% | 13.97% | 9.53% | 4.44% |
| 1983 | 37 | 8.01% | 13.18% | 9.01% | 4.17% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.31, 11.61 and 12.92. The corresponding 10 year ratios are 10.41, 11.53 and 12.80. The corresponding historical ratios are 7.46, 11.85 and 13.68. The current P/E Ratio is 12.44 based on a stock price of $107.10 and EPS 2021 estimate of $8.61. This stock price testing suggests that the stock price is relatively reasonable but above the median.
If you look at P/E Ratios compared to Total Returns for the 5, 10, 15, 20, 25, 30, 35 and 37 year periods, I find the following. For example, total return over the past 15 years is 9.68% per year, the starting P/E Ratio (the one from 15 years ago) was 17.35. From this point of view, a P/E Ratio is 12.44 would be fine.
| Year | Tot Return | Start P/E |
|---|---|---|
| 5 | 11.46% | 11.02 |
| 10 | 11.41% | 15.12 |
| 15 | 9.68% | 17.35 |
| 20 | 11.36% | 14.21 |
| 25 | 16.43% | 8.74 |
| 30 | 14.90% | 7.56 |
| 35 | 13.97% | 9.52 |
| 37 | 13.18% | 11.47 |
I get a Graham Price of $104.95. The 10 year low, median, and high median Price/Graham Price Ratios are 0.91, 1.01 and 1.10. The current P/E Ratio is 1.02 based on a stock price of $107.10. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.96. The current P/B Ratio is 1.88 based on a Book Value of $80,959M, Book Value per share of $56.86 and a stock price of $107.10. The current ratio is 4% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 7.29. The current P/CF Ratio is 9.92 based on a stock price of $107.10, Cash Flow per Share estimate for 2021 of $10.80 and a Cash Flow of $15,387. The current P/CF Ratio is 36% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. The P/CF Ratios have varied a lot over the past 10 years from a low of negative 35.60 to a positive 12.49. I wonder how good this testing is for the bank.
I get an historical median dividend yield of 3.93%. The current dividend yield is 4.03% based on dividends $4.32 and a stock price of $107.10. The current dividend yield is 1% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 3.99%. The current dividend yield is 4.03% based on dividends $4.32 and a stock price of $107.10. The current dividend yield is 3% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 3.01. The current P/S Ratio is 3.35 based on Revenue estimate for 2021 of $45,560M, Revenue per share of $32.00 and a stock price of $107.10. The current ratio is 11% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is probably reasonable. The dividend yield tests say reasonable and below the median. The P/S Ratio test says reasonable and above the median. So, we know the price isn’t cheap, but it can be at reasonable. The good tests seem to say reasonable and above or below the median.
Is it a good company at a reasonable price? The stock price is probably reasonable. This is a Dividend Growth Canadian Bank. As with all Canadian Banks, this one has a long history of paying dividends. They have increased the dividend paid 28 years in the past 37 years.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (3) and Hold (5). The consensus would be a Buy. I agree on this rating. The 12 month stock price consensus is $111.59. This implies a total return of 8.23% with 4.19% from capital gains and 4.03% from dividends.
Most analysts on Stock Chase like this bank and think it is a buy. Debra Ray on Motley Fool lists this bank as one of the top three banks to buy in 2021. The executive summary at Simply Wall Street gives this bank 4 stars out of 5 and list 3 rewards and no risks. A writer on Simply Wall Street would like to see better earnings growth to recommend this stock as a good dividend stock. The blogger Dividend Earner did a recent analysis of all Canadian Banks.
Royal Bank of Canada is one of the two largest banks in Canada. It is a diversified financial services company, offering personal and commercial banking, wealth-management services, insurance, corporate banking, and capital markets services. The bank is concentrated in Canada, with additional operations in the U.S. and other countries. Its web site is here Royal Bank of Canada.
The last stock I wrote about was about was Bank of Montreal (TSX-BMO, NYSE-BMO) ... learn more. The next stock I will write about will be Rogers Sugar Inc (TSX-RSI, OTC-RSGUF) ... learn more on Friday, January 8, 2021 around 5 pm. Tomorrow on my other blog I will write about Something to Buy January 2021.... learn more on Thursday, January 07, 2021 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
No comments:
Post a Comment